Apple reaches US settlement over app purchases

Federal Trade Commission chairwoman Edith Ramirez announces in Washington that Apple has agreed to a $US32.5 million FTC complaint that it failed to obtain informed consent before charging for goods or services in relation to children purchasing apps on its products. Photo: AFP

Edward Wyatt and Brian Chen

An agreement between United States federal regulators and Apple may make parents wince a little less at the sight of their children staring at an iPhone.

The Federal Trade Commission said on Wednesday Apple had agreed to ­better ensure parental approval of purchases from the company’s App Store. Apple will pay at least $US32.5 million ($36.8 million) in refunds to customers whose children made purchases without adequate parental consent.

Apple settled a class-action lawsuit last year over unauthorised purchases within apps – transactions that could be made within 15 minutes of buying an app from Apple without having to provide an additional password or authorisation. As part of the settlement, Apple offered refunds to consumers who were affected.

The company said in an email to employees on Wednesday that it had received 37,000 claims. But the FTC said that similar activity had continued long after the class-action settlement. In a consent decree that now must be approved by a federal court, Apple agreed to modify its practices.

“We allege that Apple has been aware of the issue since at least March of 2011,” said Edith Ramirez, the FTC chairwoman. “In our view the problem continues and it needs to be rectified.” Apple faces a March 31 deadline to notify consumers about the refunds and to make other changes.

At one time, after a user bought an app, there was a 15-minute window to download other products without having to enter a password. This meant children with Apple devices had 15 minutes after their parents bought an app to purchase goods in the App Store or within apps.

With a software update to its mobile devices in 2011, Apple began requiring users to re-enter passwords when making a purchase within an app, even if it was opened within 15 minutes of buying an app on iTunes. Once the password is re-entered, though, users have another 15 minutes to buy in-app items before they’re forced to enter their password again. Apple’s mobile operating system iOS also offers parents more finely tuned controls over in-app purchases and the ability to shut them off.

The FTC said Apple needed to be clearer to consumers when other purchases can be made within 15 minutes. The FTC also said Apple must give consumers a choice when they buy an app about whether to accept the 15-minute window for in-app purchases, as well as the ability to withdraw their approval.

In an email to Apple employees on Wednesday, Apple chief executive ­Timothy Cook said he did not see a reason for the government to go after Apple since it had already agreed to ­settle the issue with consumers.

Apple’s App Store for iPhones and iPads was a success because it made the process of buying software as simple as the tap of a button. Customers spent $US10 billion last year in the App Store.

In April 2011, a group of parents filed a class-action lawsuit against Apple concerning what they called “bait apps” – apps that were free to download but included their own mini-stores to buy goods. Apple and the plaintiffs in the lawsuit agreed to a settlement last year.

The business strategy for bait apps is called freemium, as in free meets premium. In mobile app stores, freemium apps now generate more revenue than apps that charge up front, according to Flurry, an app analytics company.

According to the FTC, one consumer said her daughter had spent $US2600 in the app Tap Pet Hotel and other ­consumers reported unauthorised purchases by children of more than $US500 in the apps Dragon Story and Tiny Zoo Friends.

The consent decree requires Apple to pay at least $US32.5 million; if the refunds total less, the remainder goes to the FTC. There is no upper limit on the refunds for which Apple is liable.